Not Hiring A Property Management Company Would Have Cost Me Over $2 Million

Is it me or has the term property management become a 'dirty word' lately. And don't even mention the "T" word.

One of the biggest "mental" hurdles for many people who are considering purchasing an investment property is the thought of becoming a landlord and dealing with tenants. (Yes the "T" word). In other words, what they fear the most is property management, and the headaches it can bring.

Just go to your local bookstore (or Amazon) and look in the real estate investment section. How many of the recently published books promote the buy and hold strategy? Not many. People want to invest in real estate but they don't want to deal with tenants. The authors and "real estate gurus" answer? Write books and sell seminars that teach you how to make money in real estate and never deal with a tenant. It's the new "nothing down". It seems that now people want to invest in real estate with no money and no tenants and turn huge profits.

Don't get me wrong. There are profits to be made in buying, rehabbing, and flipping properties. Even with large properties like apartment buildings and other commercial real estate. But if this is your only focus, you are leaving much of the potential returns (profits) on the table. And if you are rehabbing an apartment complex you will eventually have to fill up the suites with new tenants (property management) and run the building for a while before you flip it (more property management).

In my own experience, the majority of the profits that I have earned through my investment in commercial real estate did not come from the rehabilitation of those properties. (And I have undertaken rehabilitation programs that were in the hundreds of thousands of dollar range on commercial properties). The bulk of my profits have come from other areas of return.

cash flow

tax shelter

amortization of mortgages

and appreciation (defined as an increase in the value of a property due to changes in market conditions or other causes)

All of which require the property to be held and managed over a period of time. Bottom line? If you want to maximize your returns in the rental property business, you had better get comfortable with the idea of managing properties.

When I started in the commercial real estate investment business 14 years ago, one of the first properties I purchased was over 12 hours drive from where I lived. My feeling at the time was that there was no way that I could have managed that property long distance and been successful. The property required a major rehab/renovation and turn around. Other than moving there and managing the property myself (which I never really considered), my only other option was to hire someone to run the building.

I knew that the potential upside on the property was tremendous and the cash flow was great. In the end I opted to hire a property manager to oversee the rehab and the ongoing building management. Was that a good decision? Well, the profits from that deal alone in the end were over $2 million dollars. Had I chosen not to hire a property management company I would have missed out on those returns.

WARNING! If you do decide to hire a professional property manager to run your property (or properties), this does not mean that you can remain ignorant when it comes to this expertise (tenants, legal requirements, marketing, budgets, repairs etc.) Ultimately the responsibility for the success or failure of your business (yes, this is a business like any other) lies with you. Therefore, if you know little or nothing about managing an investment property, whether it be a single family home or a 50 unit apartment building, it is up to you to educate yourself in this area.